News / Economy

Fear of Bubble as Sanctions Stoke Iran Property Boom

FILE - General view of housing complexes in northwestern Tehran, February 2011.
FILE - General view of housing complexes in northwestern Tehran, February 2011.
Reuters
The Iranian property developer leant back in his chair, drew hard on a shisha pipe and looked down at photographs of a Tehran apartment block on his tablet computer.
 
"I designed it myself," he said proudly as he blew a cloud of scented smoke out into Dubai's night air.
 
The pictures showed the lavish interiors of apartments and penthouse suites in a 20-floor development his company recently completed in Niavaran, one of the Iranian capital's wealthiest areas, with views towards mountains to the north.
 
One of many towers to have sprung up on the Tehran skyline in recent years, it is part of a property boom due indirectly to sanctions imposed by the United States and its allies against the Islamic Republic over its nuclear activities.
 
While the sanctions threaten to bring the Iranian economy to its knees, million-dollar apartments fitted out with the best imported equipment have become ever more common in Tehran.
 
Embargoes imposed on the oil and banking sectors since late 2011 have sent the Iranian rial currency crashing, pushing up import prices and contributing to spiraling overall inflation.
 
Wealthy Iranians, often unable to move money abroad due to the banking sanctions, have tried to protect their savings by turning to property at home, further stoking the market.
 
Developers have reaped the rewards but some now believe a bubble is forming and fear the consequences should it burst. For poorer Iranians, the boom is creating more immediate problems as it stretches their ability to provide for their families.
 
"Until around two years ago, the market rose steadily. Then it started going crazy," the developer said on a visit to Dubai.
 
"You can't believe how quickly everything's gone up," he said, asking not to be named.
 
The cost of apartments in his developments — among the most sought after in Tehran — have almost tripled in two years, he said. They now sell for about 200 million rials ($5,500) a square meter, and even his medium-sized apartments cost the local currency equivalent of $1 million.
 
Property inflation has spread across Tehran and is now being felt around the country, say investors, estate agents and prospective buyers.
 
"Prices have gone up drastically in recent months," said Hooman Bina, a Tehran-based professional property investor. "There's even been a hike since Persian New Year [on March 20]."
 
Demand Vs. Costs

Iranian manufacturing is grinding to a near halt and unemployment is rising. In April the International Monetary Fund forecast the economy would shrink 1.3 percent this year. This has left investors with few opportunities beyond construction, and estate agents say it is a seller's market.
 
"A lot of people have started buying places, especially small apartments, just to protect the value of their money. Real estate looks like a safe investment, at least for now," said a Tehran-based analyst who — like many Iranians in the current sensitive political atmosphere — did not want his name to appear in international media.
 
Everything from the cost of land to equipment for new homes has soared.

"The materials used in houses such as air conditioners, elevators, wood, iron and steel, especially in buildings in northern Tehran, are of very high quality and imported from abroad," said Bina. "Everything imported is much more expensive now."
 
With the rial at 36,000 to the dollar in the open market, Iran's currency is around a third of the value it had in mid-2011, making imported goods far more expensive.
 
To sell million-dollar apartments in plush areas of northern Tehran, developers need to provide the best fittings on the market. Despite the sanctions, top quality European products such as Poggenpohl kitchens and Siemens white goods from Germany are available alongside even some American ones.
 
Those Iranians with access to hard currency are in the best position of all. Their dollars or dirhams go as far as they did in 2011, and in some cases farther, because the U.S. and Gulf currencies held their value while the rial plunged.
 
"I'd been meaning to upgrade my apartment and this is a great opportunity," said an Iranian businessman looking out over Dubai from his 18th floor office. He settled in the United Arab Emirates 20 years ago but regularly visits Tehran on business.
 
Out of Reach

As with every boom, many are missing out and struggling to afford a home as grocery and fuel prices also soar, however. After saving for 10 years, Mohammad Hossein's hopes of buying a family home are further away than ever.
 
Worse still, the surge has also pushed up rents and the 38-year-old shoe factory worker has had to move with his wife and infant to a smaller apartment in Tehran because the family could not afford the landlord's demand for an increase.
 
"Prices have gone up so much that people like us can only afford to buy or rent an apartment half the size of what they could afford with that same money two years ago," Hossein said.
 
Iran has an unusual rental system, called rahn, in which a tenant "lends" the landlord a sizeable sum, sometimes with a modest monthly rent. The landlord uses the money as an interest-free loan — a valuable commodity when annual interest rates are around 20 percent — before returning it after an agreed period.
 
When 28-year-old graphics graduate Parastoo moved to Tehran earlier this year, she soon found out her budget could not keep up with the rents. Eventually she found a 51-square-meter (550-square-foot) apartment in central Tehran, paying rahn of 385 million rials ($11,000) in addition to a monthly rent of 2.5 million rials.
 
"It was a real struggle," said Parastoo, who spoke by phone from Tehran and asked to be identified only by her given name. "The owner of my apartment originally wanted to sell it but because of the daily fluctuations in price he decided to rent and wait for prices to stabilize."
 
Decimated economy

Iran's property phenomenon reflects just how badly the economy is suffering from "stagflation" — zero growth alongside high inflation and increasing unemployment.
 
According to official figures, inflation is running at more than 30 percent but some analysts estimate the real rate could be double or even triple that.
 
"Iran has definitely entered an era of stagflation. It's very vulnerable and its own economic policy has not helped," said Steve Hanker, professor of applied economics at Johns Hopkins University in Baltimore, who estimates annual inflation at over 100 percent. "Without oil, everything would collapse overnight."
 
For those in the business, the rapid property inflation has now become worrying. The national union of property advisers says that in the second half of the Persian year [up to March 20], prices went up more than the rate of inflation.
 
"The purchasing power of prospective buyers is going down with the increased rates," said union head Mustafa Khosravi as quoted by Mehr news. "We want to see price stability because this leads to increased prosperity in the market."
 
Real estate agents say business has slowed in recent weeks and speculate this may be due to uncertainty before a presidential election in June to elect a successor to Mahmoud Ahmadinejad. The outcome is far from clear.
 
With fluctuations in the market and the ensuing difficulty of planning large-scale construction, the developer in Dubai said he had halted projects in Iran and was proceeding with caution.
 
"The country has stopped. Nothing's moving but inflation's still going up," he said. "It's a bubble and I don't know what will happen."

You May Like

IS Militants Release 49 Turkish Hostages

Turkey's state-run Anadolu news agency reports that no ransom was paid and no conditions accepted for the hostages' release; few details of the release are known More

Photogallery IS Attacks Send Thousands of Syrian Kurds Fleeing to Turkey

Syrian Observatory for Human Rights says more than 300 Kurdish fighters crossed into Syria from Turkey to defend a Kurdish area from attack by the Islamic militants More

3-day Lockdown to Fight Ebola Continues In Sierra Leone

Thousands of health workers are going door to door in the West African country of 6 million, informing people of how to avoid Ebola, handing out soap More

Featured Videos

Your JavaScript is turned off or you have an old version of Adobe's Flash Player. Get the latest Flash player.
Migrants Caught in No-Man's Land Called Calaisi
X
Lisa Bryant
September 19, 2014 5:04 PM
The deaths of hundreds of migrants in the Mediterranean this week has only recast the spotlight on the perils of reaching Europe. And for those forunate enough to reach a place like Calais, France, only find that their problems aren't over. Lisa Bryant has the story.
Video

Video Migrants Caught in No-Man's Land Called Calais

The deaths of hundreds of migrants in the Mediterranean this week has only recast the spotlight on the perils of reaching Europe. And for those forunate enough to reach a place like Calais, France, only find that their problems aren't over. Lisa Bryant has the story.
Video

Video Westgate Siege Anniversary Brings Back Painful Memories

One year after it happened, the survivors of the terror attack on Nairobi's Westgate Shopping Mall still cannot shake the images of that tragic incident. For VOA, Mohammed Yusuf tells the story of victims still waiting for the answer to the question 'how could this happen?'
Video

Video Militant Assault in Syria Displaces Thousands of Kurds

A major assault by Islamic State militants on Kurds in Syria has sent a wave of new refugees to the Turkish border, where they were stopped by Turkish border security. Turkey is already hosting about 700,000 Syrian refugees who fled the civil war between the government and the opposition. But the government in Ankara has a history of strained relations with Turkey's Kurdish minority. Zlatica Hoke reports Turkey is asking for international help.
Video

Video CERN Accelerator Back in Business

The long upgrade of the Large Hadron Collider is over. The scientific instrument responsible for the discovery of the Higgs boson -- the so-called "God particle" -- is being brought up to speed in time for this month's 60th anniversary of the European Organization for Nuclear Research, known by its French acronym CERN. Physicists hope the accelerator will help them uncover more secrets about the origins of the universe. VOA’s George Putic reports.
Video

Video Whaling Summit Votes to Uphold Ban on Japan Whale Hunt

The International Whaling Commission, meeting in Slovenia, has voted to uphold a court ruling banning Japan from hunting whales in the Antarctic Ocean. Conservationists hailed the ruling as a victory, but Tokyo says it will submit revised plans for a whale hunt in 2015. Henry Ridgwell reports from London.
Video

Video Russian Economy Reeling After New Western Sanctions

A new wave of Western sanctions is hitting Russia’s economy hard. State-owned energy firms continue to bleed profits and Russia’s national currency plunged to a new low this week after the U.S. and the European Union announced new sanctions to punish Russia's aggressive stance in eastern Ukraine. But as Mil Arcega reports, the sanctions could also prove costly for European and American companies.
Video

Video Belgian Researchers Discover Way to Block Cancer Metastasis

Cancer remains one of the deadliest diseases, despite many new methods to combat it. Modern medicine has treatments to prevent the growth of primary tumor cells. But most cancer deaths are caused by metastasis, the stage when primary tumor cells change and move to other parts of the body. A team of Belgian scientists says it has found a way to prevent that process. Zlatica Hoke has more.
Video

Video Mogadishu's Flood of Foreign Workers Leaves Somalis Out of Work

Unemployment and conflict has forced many young Somalians out of the country in search of a better life. But a newfound stability in the once-lawless nation has created hope — and jobs — which, some say, are too often being filled by foreigners. Abdulaziz Billow reports from Mogadishu.
Video

Video A Dinosaur Fit for Land and Water

Residents and tourists in Washington D.C. can now examine a life-size replica of an unusual dinosaur that lived almost a hundred million years ago in northern Africa. Scientists say studying the behemoth named Spinosaurus helps them better understand how some prehistoric animals adapted to life on land and in water. The Spinosaurus replica is on display at the National Geographic museum. VOA’s George Putic has more.
Video

Video Iraqi Kurdistan Church Helps Christian Children Cope find shelter in churches in the Kurdish capital, Irbil

In the past six weeks, tens of thousands of Iraqi Christians have been forced to flee their homes by Islamic State militants and find shelter in churches in the Kurdish capital, Irbil. Despite U.S. airstrikes in the region, the prospect of people returning home is still very low and concerns are starting to grow over the impact this is having on the displaced youth. Sebastian Meyer reports from Irbil on how one church is coping.
Video

Video NASA Picks Boeing, SpaceX to Carry Astronauts Into Space

The U.S. space agency, NASA, has chosen Boeing and SpaceX companies to build the next generation of spacecraft that will carry U.S. astronauts to the International Space Station by the year 2017. The deal with private industry enables NASA to end its dependence on Russia to send space crews into low Earth orbit and back. Zlatica Hoke has more.
Video

Video Future of Ukrainian Former President's Estate Uncertain

More than six months after Ukraine's former President Viktor Yanukovych fled revolution to Russia, authorities have yet to gain control of his palatial estate. Protesters occupy the grounds and opened it to tourists but they are also refusing to turn it over to the state. VOA's Daniel Schearf reports from Mezhigirya, just north of Kyiv.


Carnage and mayhem are part of daily life in northern Nigeria, the result of a terror campaign by the Islamist group Boko Haram. Fears are growing that Nigeria’s government may not know how to counter it, and may be making things worse. More

AppleAndroid

World Currencies

EUR
USD
0.7768
JPY
USD
108.84
GBP
USD
0.6124
CAD
USD
1.0999
INR
USD
61.042

Rates may not be current.